Liability of Personal Guarantor on Debtor’s Debt

Terminologically, guarantees are divided into two i.e., general guarantees and special guarantees. General guarantees are regulated in Article 1131 of the Indonesian Civil Code, which stipulates that:

“All objects of the debtor, both movable and immovable, both existing and those that will exist in the future, are borne by all individual engagements.”

Based on this, all debtor’s assets can be used as collateral for debt, even though the debt agreement is not followed by a guarantee agreement.

There are also special guarantees which consist of two kinds, i.e., (i) personal guarantees and (ii) material guarantees. Special guarantees exist because general guarantees are still considered inadequate by creditors, so they often ask to be provided with special guarantees. In material guarantees, the debtor provides collateral to the creditor as guarantees for the debt borrowed by the debtor. So, if the debtor does not pay the debt when it is due, the creditor can demand the execution of the objects that have been used as collateral by the debtor to pay off the debt. While in personal guarantees, a third party is involved for the interests of the creditor where this third party commits to assume the debtor’s obligations if the debtor is not able to fulfill its obligations. In practice, creditors, apart from asking for material guarantees, also ask for additional guarantees in the form of personal guarantees (borgtocht).

A. Debtor’s Debt

Before discussing further the responsibility of a personal guarantor for the Debtor’s debt, it is necessary to first explain what debt is. Debt in Article 1 number 6 of Law Number 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (“Law 37/2004”) is defined as an obligation that is stated or can be stated in the amount of money either in Indonesian currency or foreign currencies, either now existing or those that will exist in the future or the so-called contingencies resulting from agreements or laws in the future. Debt payment obligations must be fulfilled by the debtor in which the non-fulfillment of these obligaton entitles the Creditor to obtain the fulfillment from the debtor’s assets.

According to Prof. Sutan Remy in his book entitled “Sejarah, Asas, dan Teori Hukum Kepailitan”, debt is every debtor’s obligation in the form of an obligation to pay a sum of money to creditors. The obligation in question must be interpreted as an obligation that arises either because of an agreement (not limited to debt and credit agreements) or the provisions of the law, and because of a judge’s decision that has permanent legal force. Viewed from the creditor’s point of view, the debtor’s obligation to pay the debt is the creditor’s right to receive payment for the debt in a sum of money.

B. Unpayable Debt of Debtor to Creditor

What if the debtor is unable to pay off the debt to the creditor? If the debtor has difficulty paying off its debts to the creditor because the debtor does not have the ability to generate income, the creditor must obtain certainty through the sale of the debtor’s assets. In addition to selling the debtor’s assets, an alternative way of settlement (in the world of second-way out banking) that can also be taken is to sell the assets of the personal guarantor (guarantor or borg), which can be a source for debt repayment of the debtor.

Prof. Sutan Remy in his book entitled “Sejarah, Asas, dan Teori Hukum Kepailitan” explains that

“In addition to the guarantee rights which are material in nature, the law also recognizes guarantees in the form of guarantees by individuals or legal entities. That is, the guarantee is the guarantor. If, a person or a legal entity proposes to be a guarantor for another person’s debt (the debtor), then if the debtor does not pay off his debt when the debt has come to be paid or can be billed by the creditor, the guarantor is obliged to pay off the debtor’s guaranteed debt. “

C. Liability of Personal Guarantor on Debt of Debtor

Personal guarantor (borgtocht) is basically an individual who is used as or provides guarantee for debts as regulated in Articles 1820-1850 of the Indonesian Civil Code. Pursuant to Article 1820 of the Indonesian Civil Code, personal guarantee is an agreement where a third party, for the interests of the creditor, commits to assume the debtor’s obligations if the debtor is not able to fulfill its obligations. According to Subekti, personal guarantee is an agreement between a creditor and a third party who guarantees the fulfillment of the debtor’s obligations.

Personal guarantor in making itself as a guarantee for debt of the debtor to the creditor can be stated in the Deed of Personal Guarantee Agreement by relinquishing its special rights in the Indonesian Civil Code and Law 37/2004 as the guarantee for creditors. Special Rights in the Indonesian Civil Code are regulated in Article 1131 and Article 1134. Meanwhile, in Law 37/2004, special rights are regulated in Article 114, Article 168, Article 169, Article 189, and Article 199.

The liability of a personal guarantor on the guaranteed debts is based on Article 1131 of the Indonesian Civil Code, which states:

“All movable and immovable property belonging to the Debtor, both existing and those that will exist in the future, becomes a guarantee for the Debtor’s individual engagements”

Therefore, the assets of the debtor are not only to guarantee the debt payment obligation resulted from the agreement but also to guarantee all obligations arising from the debtor’s engagement.

According to Prof Hadi Subhan, in his statement as an expert at the trial on September 14^th, 2022 at the Commercial Court at the Semarang District Court, he explained that:

“Personal Guarantor means a person or third party that is not the main debtor who will guarantee to fulfill it when the Debtor defaults. So the elements are that the first is the main Debtor, the second is a third party guarantor, the third is the main Debtor is in default. Because he/she is only obliged to fulfill the agreement when the main Debtor is in default”.

A personal guarantor has special rights attached to him, which are stated in Article 1831 of the Indonesian Civil Code:

“The guarantor is not obliged to pay the creditor, except if the debtor is negligent, while the debtor’s objects must first be confiscated and sold to pay off the debt”.

Although a personal guarantor has special rights regulated in article 1831 of the Indonesian Civil Code, there usually is a clause in the guarantee agreement stating that the personal guarantor waives its special rights, which actually have legal consequences for the personal guarantor itself.

Therefore, based on laws and regulations, the liability of the personal guarantor on the Debt of the Debtor can be interpreted that personal guarantor is responsible for the Debt of the Debtor and is fully responsible for paying off all the Debts of the Debtor to the Creditor if the Debtor has absolutely no ability to pay off its debts to the Creditor.

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